Posted
by
Soulskill
on Sunday September 30, 2012 @07:33AM
from the everybody-donate-8-cents-to-find-out dept.

Barence writes "Is it really practical to fund a business from hundreds of small donations harvested over the internet? With Kickstarter grabbing the headlines with some high-profile projects, it's all too easy to assume crowdfunding is great, the obvious solution for a business that needs investment. But just how feasible is it for most businesses? This article looks at several lower-profile examples and investigates the positives and negatives of this new way to raise money."

1. Famous douchebag X with a massive existing following does lame PR stunt Y to promote shitty retarded concept Z.2. Everyone praises shitty retarded concept Z, ignoring lame PR stunt Y and giving famous douchebag X "credz" for opening our eyes to this magical new way that Changes Everything (TM).3. Nobody grasps that shitty retarded concept Z only worked because famous douchebag X is famous douchebag X and that Mr. Nobody won't even get any freeloaders playing his game or listen to his song or whatever *fo

Obviously there are a lot of people who won't get any kind of funding and that's perfectly normal, it'd be a pretty strange world if everyone got the money they asked for. That doesn't say much about the relative merits of crowdfunding versus investor funding.

I would agree with that. I have a project on Kickstarter that we will likely remove because we couldn't get it funded. There is absolutely no traffic to it and we're now exploring other avenues of funding.

If you get picked up by Kickstarter and featured on the homepage, you will be funded. If you don't, then you have to go back to traditional marketing and advertising to get your product off the ground. Nothing has changed in business yet.

You just got another backer; looked at your project and liked it. Can't do much, though; after paying bills out of social security check, I allot myself $20/mo. for 'mad money' - an ebook, a donation, a pint or two of Guinness.

Dumb suggestion: offer link to a few.flac files or such (along with strong caveats viz. users' current sound setup) comparing your rig to several representative units.

a) get people aware of your kickstarter projectb) give them a reason to invest in your project

Your KS page seems to have done a decent job of (b), but I would guess you didn't put enough effort into (a).

Exactly.

Why is it as new technology comes around, people think it's the next big thing that completely obliterates the need for stuff like marketing? You may think advertising and such is the evilest thing on the planet, but if people don't know about it, how

Perhaps if you A) explained what your product is. I looked at your page. Saw a bunch of photos of something (speakers?) and figured it has something to do with iPods (maybe?) but still don't really have a clue what your product is.
B) Market your kickstarter. Yeah you are right, if no one knows about it, know one will fund it.
C) Come up with a product people might actually want. Of course I'm not exactly sure what your product is, but as near as I can tell it is two speakers I can hook my iPod up to... Ar

If the project is well thought out and the pitch is done reasonably well so that the the funder knows what they are getting into, then yes, it does work.

As a kickstarter myself (shameless plug: Ultra-Bot [ultra-bot.com]) I started out with a modest goal... and quickly achieved it with a product that I think was well thought out, had reasonably low expectations and offered the intended audience exactly what they wanted.

With that said, however, there are a few kickstarters that are way off the mark and haven't thought it out that well... usually because they have their emotions tied into the product and it really isn't as good as they think it is... which in that case, Kickstarter actually works as well... it allows you to know that your idea isn't so hot before you invest a billion bucks in it.

Its a long winded article, the short TLDR is crowdfunding is the hip new term for the middle aged concert ticket business model which is based on the ancient business model of patronage. Some things like films work really well with a concert ticket / patronage model, almost everything else, not so well.

I've crowd funded a couple films. Mostly tech. Mostly tech documentaries directed by Jason Scott. I'm eagerly awaiting the release of 6502, for which I donated a healthy chunk of change. So I have some experience with this business model, and I like it.

I basically paid "an entire row of movie theater tickets" for a documentary I really want to see, done by a guy with a proven track record of decent tech documentaries. Needless to say the local theater is totally uninterested in taking a couple hundred bucks to put my taste of movie on instead of the bubblegum for the mind they specialize in. I literally cannot get the local movie theater to take my money. But via crowdfunding over the internet, I can finally get someone to take my money.

Crowdfunding really works best when there is no way to get "the locals" or the "established companies" to take my money. There are VERY FEW areas where this actually works. There are no shortage of pizza restaurants around here... crowdfunding a "pizza startup" isn't going to work. Or yet another web 2.0 company following existing trends.

Another thing you need is fanatics... Where mass industry collides with supply and demand. I'm more than willing to give away $15 for Stross's latest novel. Heck I'd give him $50. There is no known business model where I can give a book author $35 more than list price other than crowdfunding.

Finally crowdfunding works well in a gift economy. My wife got me a package deal with some custom signed artwork a couple years ago as a gift. Awesome, but out of pocket I would not have dropped that kind of dough for myself. Right now is prime gift giving time for Christmas, maybe even a little late, so you're going to see crowdfunding articles peak around this time of year.

I know several authors who will be happy to take your money on the old-school patronage model.

Seriously, if you have a few grand lying around, I know some authors who will take that instead of a traditional publisher's advanced royalty payment and use the money to live on as they finish the book.

By authors I'm speaking of people who have already published paper novel-sized works in regular - non-novelty-press - publishing houses.

If you are seriously interested in giving authors $35 or $3500 more than retail

Its a long winded article, the short TLDR is crowdfunding is the hip new term for the middle aged concert ticket business model which is based on the ancient business model of patronage.

I would argue, it is more of a presale. It will work if you can convince enough people to pony up the money before hand. Crowd source funding isn't anything new, it has been going on for years.
I would also be willing to bet, you could probably contact just about any author, and offer to paypal a donation.

I don't think the question should be can you raise money for your business (or idea) with crowd funding. I think the question should be, is crowd funding intelligent enough to pick winners and losers? Most popularity contests are won by the superficial as opposed to substance.

With crowdfunding, it's much easier to get money by being flashy and having a low buy-in price like $1 - $5. A little viral marketing, and you have $50-100k in no time because a buck is nothing to people and you are never scrutinized for wanting some pocket change. If project buy-ins were regulated and limited to certain minimums, say $100 - $500, then the project owners are going to have to submit some well-documented proposals on how they plan to deliver and demonstrate genuine drive to finish the project

There was no suggestion on how easy or hard viral marketing is. The OP was right, a little viral marketing, and you'll have a ton of money in no time. Of course it is difficult to get "a little viral marketing." But that isn't relevant to the original post.

This comment [slashdot.org] is on the issue of the market solving the problem of government meddling with raising funds with this kickstarter project. I do not know if all companies can benefit from kickstarter, but surely some can. Today trying to get a business loan is an exercise in futility as the government crowds out all of the real credit, so none is available to the small firms, startups. The startups have to rely on VCs, friends, family, angel investors, but the rest of the market (almost all small time investors) are prevented from investing in companies while there is a potential for a real upside. The government regulations surrounding IPO prevent small investors from being able to get into businesses while there is actual upside, instead it is VCs (and underwriter banks) that mostly gain from IPOs and the IPO becomes a way to cash out instead of a way to try and grow a new business.

Kickstarter is a good first idea that allows people to invest into businesses before they could ever qualify for IPO money. Of-course there is risk in using kickstarter to try and invest, but there should be risk, people should be evaluating risks instead of blindly jumping into the casino that the inflation turned the stock market into.

Yes, the SEC limits your ability to raise funds in exchange for equity. The rules are (surprise, surprise) complex, but if you're asking people to invest who aren't principals of the company, they need to be "accredited investors":

The idea had been to prevent people from being bamboozled into making bad investments. With Kickstarter, right now, you're being told explicitly: this is not an investment. It's a gift, with token prizes, not a piece of the action. "Accredited investors" are rich enough that they can afford to absorb losses. That changes next year with the JOBS act:

There is some concern that it will be used for fraud, as people give a lot of money for impossible returns. I think those concerns are well-founded, but we'll have to see. It might just be our next bubble.

Yes, I understand that point about not being able to go IPO without meeting various government requirements, and while the gov't will tell you that it is trying to 'protect you from fraud', what actually happens is that investors are being 'protected' from making money, while fraud flourishes anyway, and FB is a good example of that, it's legal fraud, it's done with all the regulations in place and it stole billions from people who bought into the IPO.

Kickstarter's still entirely separate from the public market. That's actually one of the other problems with offering equity via Kickstarter: you've got very little liquidity. Once you're in, you're in, and you'll have a hard time finding somebody to buy you out. You need to know that going in.

They may solve that problem eventually, though as you note, it just magnifies the potential problem. Fraud isn't exactly rampant in the public exchanges. Or at least, it's swamped by irrational enthusiasms. That doesn

FB is a good example of that, it's legal fraud, it's done with all the regulations in place and it stole billions from people who bought into the IPO

...and the really tragic part is that when the next FB comes along, billions more will be stolen legally from the morons who invest in it

moral of the story: easy money from stockmarket investment is akin to easy money from anything (including poker machines, horse racing, etc)... it's called "gambling", and rarely works out the way the participant expects

Not necessarily, I already replied to a similar remark. [slashdot.org] Kickstarter may be just first of a class of new businesses that help companies to raise money, whether it means that the money provided is a loan or not is immaterial, it's an investment regardless even of you being able to hold equity in the company you give money to. Maybe to you it's an investment even if you don't own part of the company simply because you want to see the product developed and to be able to use it, so it's like a front payment.

Did you read the linked articles? Banks do exist that do not charge interest. I'm sorry if that breaks your brain.

It does not even have to be a "something for nothing" transaction; as a banker you could require a fixed 120% repayment. That is not, of course, how the existing interest-free lending institutions work.

Banks do exist that do not charge interest. I'm sorry if that breaks your brain.

- yeah, and the Federal reserve charges no interest rates to the banks that it 'lends' money to. I am saying that not charging interest rate is unsustainable for the economy, not that some people are not doing it. The Federal reserve is not charging interest rates to the member banks as it provides them with all this money, the banks in turn use the money to buy government debt, which then allows the government to keep spending. As I said - this is unsustainable. This practice distorts the market telling i

Crowdfunding replaces a bank loan. It is interest-free lending for the Internet era.

Not really. It's not a loan because the crowd funders don't expect to get their money back. I chipped in for a crowd funded film and I certainly don't expect to get my money back. It's more like pre-ordering. I paid in advance, and I expect to get a film to watchh.

You invested in an opportunity to watch a movie that you think you want to watch. It doesn't come without the risk that you may end up not getting any return on that investment if the movie is not produced after all, but that's what all investments are - risky. Nobody can remove risk from investing and while governments promise this to everybody the end result is disastrous, because without the concept of risk everybody takes all risks regardless of the odds of success.

You invested in an opportunity to watch a movie that you think you want to watch

No, it's not an investment. If you call every outlay of money an investment then it renders the term meaningless. It's no more an investment than spending money to go to the cinema. If that case, I pay for the opportunity to watch a movie that I think I want to watch. In exactly the same way, the moive I want to watch may never be produced (the one I pay for might suck terribly). I don't consider going to the cinema or art patro

As others have said, Kickstarter has no relation to an IPO as it isn't even an investment. More confusing is reference to small investors blocked for IPOs. IPOs are by definition public to all investors. Do you mean pre-IPO? If you do mean pre-IPO what government regulation do you think stops you from investing pre-IPO? You are in fact more than free to find any private company you like and invest in it (assuming they are interested in your investment). Those are obviously risky investments, but has y

Kickstarter allows a startup or an idea to be attempted by somebody, who otherwise has no access to money markets for example via IPO. As to it being an investment, it is an investment. It is an investment in a potential product that the person may want to see developed. Also as I said Kickstarter a first of a kind, if it doesn't allow equity to be shared among investors, then somebody else may attempt building a competitor to Kickstarter where equity could be shared. Kickstarte

Are you sure you want to try and prove a negative? AFAIC Kickstarter is the proof positive that you are wrong on this. Many companies would love to be able to access the public for initial funding but they cannot.

But with Kickstarter, the owner doesn't have to give up any equity or give contributors any voice in decisions. A VERY big difference. With Kickstarter, they basically get free money to try something if people think it is a good idea.

I think though that if Kickstarter (or a competitor) comes up with the business model that allows a small investor actually to own part of the business they are investing in, there will be government intervention

Absolutely. That would already be illegal with current regulations unless done in a way to basically copy existing VC structures and thus not be public. If you want to market you company publicly you are free to do so, but that is an IPO. If you don't yet want to go public

At the risk of sounding like an "In Soviet Russia" meme, the question to ask is:

In 2012 America, will crowdsourcing fund YOU?

Or more to the point, is it the best way to achieve your funding and other goals. Remember, as a business startup, you may have other options that may be better for you even if crowdsourcing would work for you:

A few large-donor patrons or angel-investors, family-money support, a bank loan, personal money, or even buying the shell of an existing public company and offering a secondary

Crowd funding works! How many projects have been able to get off the ground and even become successful after applying for public funding. With crowd funding you get one major advantage and that is the ability to pitch your idea to much bigger group. When you try to make a pitch to a small group of investors your relying on a small group of people understanding and taking great interest in your idea, if they don't understand your idea it's almost doomed to fail. This is what crowd funding helps eliminate

Well, maybe and exception, but for non-business projects, Kickstarter works great if the idea of the project can make the people feel they're part of it.

I know about a movie, of a new Director that already made a pair of good very-low-budget movies that wanted to make a new one but better produced. Depending on the amount of money one send, you can get a different benefit like a DVD of the film, a ticket for the movie premiere or at least, see your name in the credits.

Kickstarter is a great idea, but I think it will soon become difficult to fund projects due to lack of quality control. I think there will be too many projects that get funded but fail to deliver (like this one [pitchfork.com]), people will become wary about what they fund, and eventually it will be almost as difficult to get a Kickstarter funded as it is to just find an investor.

I think this DEVO App Kickstarter [kickstarter.com] is a good illustration of the problem. As an iOS programmer and I can tell you that this project will almos

I wouldn't qualify myself as an expert, but the app goes from 'this is cute' to 'this is meaningless' with a side of 'he wants HOW MUCH?' in a few seconds of critical observation. I'm a DEVO fan, and I was more than happy to give it the benefit of the doubt, but the pitch pulled apart very quickly for me.

I've helped fund a lot of self published comic books, a painting series about the Wall Street Meltdown, and other artistic endeavors. Every one I have funded has so far resulted in a tangible product in my hands, usually signed by the artist (with extra sketches).

But I shy away from ones that are involved in things that are purely software oriented,or based on any technology higher than the iPod Nano wristwatch converter (with the exception of indie games from already established studios.) I'm still ra

That article was remarkably free of actual numbers. I was hoping for some statistics. Speaking of which, here's an article about Kickstarter projects that I read a while back ( http://www.appsblogger.com/behind-kickstarter-crowdfunding-stats/ [appsblogger.com] ). They included some actual numbers - for example: "Projects that are featured have a 89% chance of being successful, compared to 30% without." (I presume that means "featured on the Kickstarter homepage".) The downside to that statistic is that, as more projects appear on Kickstarter, the smaller percentage of them will be on the front page (because there's limited space). If that's true, it means the percentage of successful Kickstarter projects will decline as more projects appear on Kickstarter.

That's what stock certificates ARE. That's what the stock-market is FOR.

The only thing that kickstarter changes is the nature of the transaction. Instead of the wealthy investing in the company (or more accurately these days: investing in the likely future value of a piece of the company - which as it's own set of products) the future CUSTOMERS invest in a PRODUCT they want to buy.

If anything that is a MORE sustainable model than the old one, but the idea of crowdfunding a business isn't new. It was invente